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AT&T, Time Warner plan to skirt FCC review of megamerger

They still would need Justice Department approval of the $85 billion deal.

AT&T CEO Randall Stephenson (L) and Time Warner CEO Jeffrey Bewkes defend the proposed merger of their companies at a WSJD Live technology conference in October.

AT&T and Time Warner may have found a smoother path toward their proposed $85 billion merger: going around the Federal Communications Commission.

In a document filed late Thursday with the Securities and Exchange Commission, the two companies said they don't plan to transfer any of Time Warner's FCC's licenses to AT&T once the deal closes. That could allow them to bypass an FCC review of the megamerger.

The FCC gets involved in merger reviews when communications licenses are transferred from one company to another as part of the transaction. Because the companies won't transfer their licenses, the FCC likely won't be involved in the review.

Of course, the US Department of Justice, which has already begun asking the companies to file detailed information regarding the proposed merger, will still review it. Under the Hart-Scott-Rodino Act, the DOJ reviews mergers to ensure they don't violate antitrust laws.

But analysts say a DOJ review of a merger is more predictable than an FCC review, because the DOJ is subject to court oversight and must satisfy established legal tests in rejecting a merger.

By contrast, the FCC process is inherently uncertain, because it uses a vague "public interest" test that commissioners against the deal can easily manipulate, according to Matthew Schettenhelm, an analyst with Bloomberg Intelligence. There's also no effective way to challenge the FCC's decision in court, he added. Instead, an adverse decision from the FCC only leads to a much longer FCC hearing.

"Going through the FCC process is like steering your car to an unknown highway with no marked tolls," he said. "The road may be much longer than you'd like, and you may have no real way to argue the tolls are too high. Once you start down the road, you can only hope for the best. It's best to avoid it altogether."

Political pressure

While AT&T CEO Randall Stephenson has repeatedly said he's confident regulators will approve the deal, politicians on both sides of the aisles have expressed concern. As a candidate, President-elect Donald Trump said he'd block the merger, arguing the tie-up would mean "too much concentration of power in the hands of too few." Trump hasn't said anything about the merger publicly since then.

There have been signs Trump's position may have softened as he's brought pro-merger advisors onto his transition team. But a Bloomberg report earlier this week that cited unnamed sources said Trump had told a friend in the last few weeks that he still considers the merger to be a bad deal.

Meanwhile, Republican and Democratic lawmakers have been critical of the deal.

Last month, Stephenson and Time Warner CEO Jeff Bewkes traveled to Capitol Hill for a bipartisan grilling at a Senate subcommittee hearing on the merger. Republican Sen. Mike Lee of Utah, the chairman of the subcommittee, questioned whether the merger might lead AT&T to favor its own content over the competition's. Iowa Republican Sen. Charles Grassley cited concerns that a merger of this size would concentrate too much power in the hands of one company and he worried that it might affect freedom of the press.

Stephenson and Bewkes defended the deal, reassuring senators that the combined company wouldn't lead to price gouging and that innovation would flourish, which would result in lower prices for consumers.

Still, critics, such as the public interest group Public Knowledge, believe a deal that combines the biggest pay-TV and internet service provider in the US with one of the largest creators of TV programming will hurt competition by giving AT&T an incentive to raise costs to rivals who want to carry Time Warner programming.